The value chain is a concept developed by Michael Porter in 1985.

It is the way in which the different

stages of production add value to a final product or, conversely, how the total value of a product is
attributed to each stage. In this essay we will learn what is an international value chain? And what is its
impact on global and national trade and economies?

Global value chains imply that the production steps, from the design of a product to its delivery to the
final consumer, are carried out in different countries. This organization has been driven by companies in
advanced economies, encouraged by global competition to optimize their production processes through
outsourcing and offshoring of certain production operations.

Global value chains are a manifestation of the international fragmentation of production, which is a
source of economic gains. This phenomenon of fragmentation can be designated by different terms:
cutting, unbundling, delocalization, vertical specialization, task trading, etc.

This chain can be considered as a large-scale extension of the division of labor dating back to the time of
Adam Smith. MVCs have been made possible by globalization and trade liberalization.

The intensity of global value chains is measured by value-added trade, which is the most common
indicator; it takes into account the two forms of a country's participation in global value chains:
upstream, when imported foreign inputs are incorporated into the country's exports (backward
integration), and downstream, when economies export domestically produced inputs to partners
involved in the final stages of production (forward integration)

To organize their production internationally, firms can use two strategies: integrate a foreign subsidiary
into the value chain (foreign direct investment) or outsource a production step to an independent
foreign supplier (international subcontracting). For a standardized input, it is probably cheaper to rely on
foreign suppliers, while for customized intermediate products, requiring specific technology transfer, it
may be safer to establish (and control) a foreign subsidiary.

The international fragmentation of production chains has had a significant impact on the structure of
world trade. Some important effects are:

Increased intra-industry trade: Trade in similar products between countries that have similar
comparative advantages in producing those products.

Diversification of trade: Firms are able to search for the best production costs globally. This allows firms
to focus on their comparative advantage in a particular stage of production, while other stages are
carried out elsewhere.

Increased specialization: Global production chains have led to increased specialization, as firms can focus
on the activities in which they excel, while other activities are outsourced. This has led to increased
competition between firms.

Macroeconomic impacts: structural decline in inflation levels resulting in part from lower prices for
imported inputs and competitive pressure on local suppliers of intermediate goods

Increased dependence of countries on each other: Each country depends on the others for essential
components in the production of goods and services.

However, MVCs also have implications for workers, governments and the environment. Workers may be
exposed to difficult working conditions and low wages in countries where production is offshored, while
governments may lose jobs and tax revenues. In addition, production in different countries can lead to
an increased carbon footprint and overall environmental costs.

The fragmentation of productive processes and the insertion of domestic firms into global value
chains have important implications for national economies.

On the one hand, this fragmentation can contribute to economic growth by allowing domestic firms to
access new markets and increase their productivity. By integrating into global value chains, these firms
can benefit from foreign expertise and technology, as well as increased competition and reduced costs.

On the other hand, this fragmentation can also have negative effects on national economies. For
example, if much of a country's production is linked to global value chains, it may be particularly
vulnerable to fluctuations in global markets. In addition, the benefits of fragmented production
processes may not be distributed equitably, leading to economic inequality.

Ultimately, the impact of the fragmentation of productive processes and the insertion of domestic firms
into GVCs will depend on many factors, such as national economic policies, levels of competitiveness of
domestic firms, relationships with trading partners, and global trends.

Global value chains (GVCs) can also offer several benefits to developing countries. Some examples
include

Access to international markets: GVCs provide developing country firms with access to international
markets. This can increase exports, stimulate economic growth and create jobs.
Technology and skills: Providing technology and skills that can be used to improve the quality and
productivity of local firms, which can boost their competitiveness and efficiency.

Foreign investment: MVCs often attract foreign direct investment in developing countries as companies
seek to locate in places where labor is cheap and there are opportunities for growth. This can bring
capital and jobs to developing countries.

Infrastructure Development.

Increased competition: This can lead to lower prices and improved quality of products and services.

In conclusion, we can say that global value chains allow companies to share tasks; to take advantage
of the benefits of specialization and the international division of labor to increase their competitiveness
and reduce their costs.